Tuesday, February 4, 2014

Verso was supposed to merge with NewPage, but the deal was contingent on Verso bondholders agreeing to an exchange offer that would basically give them a 50 percent haircut:

"Upon the consummation of the Merger, (1) the principal amount of the outstanding New Second Lien Notes will be adjusted such that a holder of $1,000 principal amount of New Second Lien Notes immediately prior to the Merger will hold $470 principal amount of New Second Lien Notes immediately following the Merger, (2) the maturity date of the New Second Lien Notes will be extended to August 1, 2021, (3) the interest rate will be adjusted such that the New Second Lien Notes will bear interest at the rate of 10% per annum from and after the date of the consummation of the Merger, (4) the optional redemption provisions will be amended, and (5) the New Second Lien Notes will thereafter be governed by different covenants."

"In light of substantially less participation by the Early Tender Time as compared to the minimum participation thresholds, and based on the large disparity between what a group of non-participating noteholders has requested and what Verso is able to offer under the merger agreement governing the pending merger, Verso is concerned about its ability to consummate the exchange offers as required under the merger agreement. Verso has sent a letter to the board of directors of NewPage informing it of Verso’s concern about its ability to satisfy the exchange offer requirement and thus close the merger."

It's pretty outrageous that VRS has a market cap of $162 million and they wanted the bonds to agree to a huge haircut without any upside. Why shouldn't the bonds get a bunch of VRS equity if there is going to be a haircut?

My thinking is that since the upside on bonds is limited to the coupons, they should never ever suffer a loss of principal unless the equity has been wiped out.

This looks like a win-win. For the deal to close, bondholders will dilute the equity substantially. If the shareholders don't agree, then the deal will not close and the price will fall substantially. APO owns >60-70% of VRS. Who owns the bonds -- is there any concentration of ownership?

Blog Archive

Nothing on this blog shall be construed as investment advice or as legal advice. No site content (including advertisements) shall be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy.

The content on this site is provided without any warranties, express or implied, and does not constitute, and should not be taken as, investment advice.

The author and affiliates may and do hold positions in the securities and companies mentioned on this site. Any position disclosed on this site may be modified or reversed without notice to you.

The ideas expressed on this site are solely the opinions of the author. Any action that you take as a result of information, analysis, or advertisement on this site is solely your responsibility.

By accessing or using the RSS feeds on this site, you are agreeing to these terms and conditions: You may use the RSS Feeds on your Web Site for non-commercial use only, and with visible attribution. You may not sell, retransmit, redistribute, or commercially exploit the RSS Service, headlines or content in any manner except as expressly permitted by us. Credit Bubble Stocks reserves the right to discontinue providing RSS feeds and to require that you cease accessing or using the RSS feeds, or RSS feed content, at any time for any reason.